The IRS recently announced that they have made over 60 inflation adjustments for 2023. As one of the leading accounting firms in Nashville, we want to make sure our clients understand these updates. These include increases in:
Unearned Income of Minor Children Subject to the “Kiddie Tax
Every year the tax code changes. The tax professionals at PHB CPA’s are always up on the latest changes. We have to know what these changes are so they can give our clients the best service. If you have questions about the 20222 or 2023 tax code, please call us today for an appointment. As an experienced CPA firm, we can provide support and assistance in all your tax, financial, and business affairs.
Standard Deductions for 2023
Changes to 2023 tax provisions include increases in the standard deduction for married couples and single individuals. The standard deduction for married couples filing jointly is $27,700, which is a little over a 6.9% increase of $1,800. For single taxpayers and married individuals filing separately, the standard deduction is $13,850. This is a little over a 6.9% increase of $900. For heads of household, the standard deduction will be $20,800, which is a little over a 7.2% increase of $1,400.
Income Brackets and Tax Rates
The first question most people have is “what income bracket am I in? — followed by the question “what is the tax rate for that bracket?” Below are the income brackets and tax rates for the categories of “married filing jointly or surviving spouse” and “heads of households.” See Revenue Procedure 2022-38 for the other filing categories.
Married Individuals Filing Joint Returns and Surviving Spouses
not over $22,000
more than $22,000 but less than $89,450
$2,200 plus 12% of the excess over $22,000
more than $89,450 but less than $190,750
$10,294 plus 22% of the excess over $89,450
more than $190,750 but less than $364,200
$32,580 plus 24% of the excess over $190,750
more than $364,200 but less than $462,500
$74,208 plus 32% of the excess over $364,200
more than $462,500 but less than $693,750
$105,664 plus 35% of the excess over $462,500
more than $693,750
186,601 plus 37% of the excess over $693,750
Heads of Households
not more than $15,700
more than $15,700 but less than $59,850
$1,570 plus 12% of the excess over $15,700
more than $59,850 but less than $95,350
$6,868 plus 22% of the excess over 59,850
more than $95,350 but less than $182,100
$14,678 plus 24% of the excess over $95,350
more $182,100 but less than $231,250,
$35,498 plus 32% of the excess over $182,100
more than $231,250 but less than $578,100
$51,226 plus 35% of the excess over $231,250
more than $578,100
$172,623 plus 37% of the excess over $578,100
Claiming the Employee Retention Tax Credit
Has your business been receiving calls about your eligibility to receive large sums of money from the government because you qualify for the “ERTC” (Employee Retention Tax Credit)? Are you wondering if these calls are legit? They might sound plausible since the government has been handing out money like candy in connection with the COVID pandemic for the last two years. And, actually, the ERTC is a very real government assistance program that was part of the CARES Act of 2020. So, those calls you are getting do refer to a legitimate government program. But watch out. There probably is a scam in there somewhere.
What is the Scam?
A plethora of ERTC “shops” have sprung up across the country. They are offering their services to help businesses claim the ERTC – for which they will collect a hefty commission. Those companies that are scamming businesses, are making the claims based on circumstances that DO NOT APPLY under the requirements of the Act.
Note: The IRS does not vet claims when they are filed. So, if the IRS pays your claim, then audits you and finds the claim is fraudulent, you are in deep trouble and the ERTC shop has already pocketed its commission.
How Do You File A Legitimate Claim?
As one of the top accounting firms in Franklin TN, we know that the requirements of the Act are nearly as complicated as the entire IRS tax code. This is partially true due to four subsequent Acts in 2021 that changed or expanded the requirements. Just as an example, there are different requirements for businesses that:
started up during the pandemic
have more than 100 full-time employees
received PPP loans
have more than 500 full-time employees
received Shuttered Venue Operators Grants or Restaurant Revitalization Funds
have gross receipts in the third quarter of 2021 that were less than 10% of the receipts in the 3rd quarter of 2020 or 2019.
and the list goes on!
So, making an ERTC claim is not a job for amateurs. If you think that your business might qualify for the ERTC, our advice is don’t trust one of these ERTC shops. Consult with your professional CPA. Please call PHB CPA’s if you have any questions about this or other questions about business tax filing in Franklin, TN.
New Rules for 1099-K Income that Might Surprise You
The 2021 tax filing deadline is long past, but now it’s time to think about new tax ramifications for 2022. In this blog, we discuss the change made to the rules for reporting 1099-K income, and what that could mean for you.
Here’s What You Should Know about the 1099-K Tax Form
Form 1099-K dates back to 2011. Prior to January 1, 2022, for most of the states in the country, the reportable sales threshold was $20,000 for third-party network companies. But now, 1099-K’s must be issued for multiple transactions or individual transactions totaling $600 or more.
What Are Third-Party Network Companies the Report 1099-K Income?
Third-party network companies are companies such as Venmo, Amazon, PayPal, eBay, Square, UberEATS, Cash App, etc. So, if your small business accepts Venmo payments, you will get a 1099-K from Venmo.
Here’s Where 1099-K Income It Gets Muddy
You could get a 1099-K even if you don’t owe anything. That’s because not all sales are taxable. As an example, imagine you sell your old bike on Craig’s List and accept an $800 Venmo payment. The bicycle cost you $1,500 new, so you actually lost money. Therefore, the $800 is not taxable, but you will still get a 1099-K from Venmo. So, when you file your taxes, you’ll have to prove to the IRS that you don’t actually owe any taxes on that sale.
To make matters worse, the dollar amount of each transaction reported is determined on the date of the transaction. It cannot include any credits or refunds. So, the next day, if you refund $20 for a missing part on your bike, Venmo won’t subtract that from the $800 it reports on the 1099-K.
Turn to the Professionals for Complicated Accounting Work
Tip: Be careful to keep good records of all your transactions and whether they are taxable or not. If your mother makes you a short-term loan until payday with a Venmo payment, you don’t want to have to pay taxes on it as income!
Employee Spotlight – Pam Bailey
Meet Pam Bailey, she is a Senior Tax Associate at PHB primarily handling our individual tax returns and working with our interns. She joined the firm in January of 2020. Pam is originally from Huntsville, Alabama and moved to TN in 2003. Pam married her best friend, Greg, in January of 2017 “Star Trek style” by none other than Spock himself in Las Vegas! They have one child, Ryker Harrison Bailey who will be turning one in September! Since he started crawling, their house has been locked down like Fort Knox. Pam and Greg also have 3 fur babies named Carolina, Sofia, & Gizmo.
Pam is an avid runner and loves to run 5Ks especially if it is for a good cause. She loves football (Roll Tide!) She also enjoys going to wineries and kayaking with her girlfriends. And loves “geeking out” over Star Trek, Star Wars, Harry Potter, Marvel, Doctor Who, etc. with her hubby.
We asked Pam a few questions top get to know her even better:
What do you like most about your job? Problem solving. Tax returns feel like a puzzle to me. They can be frustrating, but it is addictive to see all the pieces come together.
What would people never guess you do in your role? Study. It doesn’t stop when you get your license, you have to study all the time to stay current.
What advice would you give to new/young accountants? 2 Things: 1 – Stick with it. It’s so intimidating at first, but it does come with practice. 2 – Ask Questions. Don’t stay ignorant out of insecurity.
What do you like to do on your days off? Hiking, Kayaking, Running, Movies, and sometimes nothing at all
Favorite meal? Good Italian
Least favorite Food? Mushrooms
Motto or personal mantra? Life isn’t about waiting for the storm to pass. It’s about learning to dance in the rain.
Tell us something about you that would surprise us. I don’t like coffee.
What did you want to be when growing up? Military…I like the structure.
What do you always want to try haven’t yet? Living in another country, maybe Spain.
What is the first thing you would buy if you won the lottery? Can’t buy people, but I would hire a cook. I like eating healthy foods. I just don’t like making them or cleaning up the mess.
Where would you like to go on a dream vacation? Italy
What phobias do you have? I am not a fan of big spiders or snakes, but I wouldn’t call it a phobia. I think of it as a healthy fear 😉
Updated 2022 Mileage Rates for Remainder of year
The IRS has announced that the standard mileage rates are increasing. Beginning July 1, 2022, the rates are 62.5 cents per mile for business use of an automobile and 22 cents per mile for costs of using an automobile as a medical or moving expense. The standard mileage rates are an optional method, in lieu of tracking actual expenses, of substantiating the costs of operating an automobile for business, medical or moving purposes. This announcement modifies the original standard mileage rates for 2022 get full details from the IRS on their website: https://www.irs.gov/newsroom/irs-increases-mileage-rate-for-remainder-of-2022
IRS Explains How Tax Payers Can Track past refunds
We’ve all seen the “Help Wanted” signs posted in the windows of local businesses. You may have even felt the impact of short staffing at your own place of employment. Due to the Pandemic and many other complicated factors, our country is facing a nationwide shortage in the work force. This is a problem that accounting firms are facing too.
PHB is working diligently to keep our array of services and our level of staffing at the highest level. We want to continue to provide the same quality for our clients, regardless of the challenges facing our industry. We are thankful for all of our clients who put their trust and confidence in us for their accounting needs.
How Accounting Firms Are Dealing with the Staffing Shortage
The number of employees at accounting firms is shrinking through retirement and resignations due to fatigue and burnout. Hiring hasn’t kept pace with attrition, and hiring new employees is usually more expensive. So, clients may see an increase in price rates from their bookkeeper, tax preparer, auditor firms, and CPA’s. In an attempt to service clients with fewer employees, firms may also discontinue some of their services.
Additionally, as firms offer more work-from-home options, clients may not have as much access to a firm’s professional as they once did. In fact, firms may hire employees who live and work in a different geographic area or time zone from their home location. This could create added convenience for some clients.
Some firms may also begin to cull their client lists so they are able to service their clients without over-burdening their employees. Clientele that fall outside a firm’s ideal profile may be dropped. Firms will cull lower-value clients to create time for higher-value clients, which also will have the effect of improving firm morale.
Again, PHB is making every effort to meet this challenge head-on with as little impact to our clients as possible. Please feel free to contact us if you have any questions.
When to Include Short-Term Rental Income in Net Earnings Self-Employment (NESE) Income1
The short-term rental industry is booming. With rental services like AirBnB and VRBO, practically anyone can become a short-term rental landlord. So, if you are making some income on the side with short-term rentals, how do you report it to the IRS? There are a couple of possibilities, but in this blog, we will answer the question, “Should short-term rental income be treated like business income or like traditional rental income?”
Net Earnings from Self-Employment
Sec. 1401(a) of the IRS code imposes a tax on an individual’s net earnings self-employment (NESE) income. Under this rule “net rental income,” generally isn’t included in NESE, unless
The income is received by a “real estate dealer,” or
The rent includes substantial services provided to the occupant for the occupants’ convenience.
Examples of rentals where substantial services are rendered for the occupants’ convenience include hotels, boarding houses, warehouses, and storage garages. (Reg. §1.1402(a)-4(c)(2))
Consider these Examples
Example one: An individual, not a real estate dealer, owns a vacation property that he runs as a business. It’s a fully furnished property listed with various online vacation rental websites. The individual provides daily cleaning service, dedicated Wi-Fi, recreational equipment such as bicycles for renters’ use, and prepaid vouchers for local services.
Because the property is rented, on average, for seven days, it is not considered a rental activity for purposes of the passive activity loss rules in Code Sec. 469. In this example, the services provided are clearly not required to maintain the property for occupancy but are of such a substantial nature that the compensation for those services constitutes a material portion of the rent.
Thus, the net rental income is included in NESE. Practically, this income would be reported on a Schedule C for an individual rather than a Schedule E.
Example two: An individual, not a real estate dealer, rents a fully furnished bedroom and bathroom in his home by listing it on various online vacation rental websites. Renters may use the bedroom, bathroom, and only other rooms that are designated as common areas of the home. After every rental, the taxpayer cleans the bedroom and bathroom.
As in example one, the property is rented, on average, for seven days, and therefore is not considered a rental activity for purposes of the passive activity loss rules in Code Sec. 469. In this example, the taxpayer’s net income from the rentals is excluded from NESE because the cleaning service is not actually rendered for the convenience of the rental occupants but to maintain the property for occupancy.
Tax-Free Rental Income for Short-Term Rentals
You can rent out all or part of your home or apartment for up to 14 days per year and all the rental income you receive is tax free, no matter how much you receive. In fact, you don’t even have to report the income to the IRS.
1Chief Counsel Advice 202151005
Craig Ballentine Selected as “40 Under 40 Honoree” by the Nashville Business Journal
We are so proud to announce that PHB’s Craig Ballentine, has been selected as a 2022 40 Under 40 Honoree by the Nashville Business Journal. In such a booming city and competitive business community, this is no small feat!
For those of you who know and work with Craig, you understand that this is a well-deserved honor. It is exciting for us to see one of our founding Partners be recognized publicly for the quality work he does and the impact he has in his profession. Craig has been a major force in growing PHB to the firm it is today! We are so proud and not at all surprised that he was selected. You can see the full coverage here: https://bizj.us/1qdlcp
It’s not too late for 2021 Tax Planning, but don’t put it off any longer!
If you thought it was too late for 2021 tax planning, think again. It’s not, but you do need to get things in gear now. The tax professionals at PHB CPAs can advise you on various ways to reduce your tax bill for 2021.
There’s Still Time for 2021 Tax Planning
PHB can help you with tax savings strategies that you still have time to make before the end of the tax year. You can trust us to decipher changing tax laws, language, and strategies.
Don’t Stress Out over New Tax Laws
Because of COVID-19, the U.S. government has made numerous changes in the tax laws. As if the tax code wasn’t confusing enough already, now it’s even more so! Tax law changes related to COVID-19 can have very specific requirements or time constraints. These are all things that the tax experts at PHB know how to handle.
By using a professional to prepare your taxes, you stand a much better chance of getting a tax return, if one is due, on time. If you have mistakes in your return, you could be tied up in red tape with the IRS for months on end. This is due to the fact that the IRS is understaffed and underfunded. Additionally, due to the pandemic in 2020, the IRS has a backlog of over 8 million paper business tax returns.
PHB – The Nashville CPA Firm for All Your Accounting Needs
Do you have questions about withholdings, deductions, capital gains, retirement, college, investments, donations, more? We have the answers! PHB is your best choice for business taxes and planning. Call us today and set up your tax planning session.